20/20 Series: Alberta's Trade Ties with China

AT SIWIN FOODS’ FOUR-year-old, $20-million food processing plant in southeast Edmonton, vice-president Gord DeJong points to the dumpling-making machines. One wraps the pork and vegetable mixture in thin dough. A series of conveyor belts carry the dumplings through the steam cooker, a water bath and the flash-freezer, eventually dropping them into 500-gram bags, which are boxed and prepared for shipment across the country.

“Alberta has seen by far the most Chinese investment of any province, with 108 deals and $60 billion in investment since 2004. B.C. comes second, with $14.5 billion.”

The machines – with the help of the company’s 65 employees – can pump out 20,000 pieces an hour, but it’s not enough. Siwin supplies dumplings – along with potstickers, gyoza and sausages – to Sobeys, Safeway, Costco and T&T Supermarkets across the country, and business is booming. DeJong says the company plans to double the plant’s 35,000-square-foot expanse in the next year or two. “When we opened this facility I thought we’d need another building in maybe 10 years,” he says. “We need it now.” And the company is dipping its toes into international markets. In January, Siwin sent a 20-foot shipping container filled with three kinds of sausage to Costco Japan for the first time. It’s also close to entering the U.S. market, and DeJong has spent time in South Korea, although that opportunity is stymied by one of the many regulations that come into play. “The sausage casing has to be made in either Korea or Canada, and a lot of ours are made in the U.S.,” he says. “If we use that, we can’t export it to Korea.” Siwin’s success has come about without yet tapping into the massive Chinese market, which remains off limits to virtually all processed foods from Canada. It’s an ironic dilemma for Siwin, considering that its parent company is Chinese giant Xiwang Foodstuffs, which has 14,000 retail outlets throughout the northeast Shandong province, and the Edmonton plant was built with Chinese money. Siwin is looking to get into the market – with the help of the federal and provincial governments – but DeJong knows developing an export market can take time. “I’ve been working with Costco Japan longer than I’ve been working with Costco Canada,” he says. “I almost gave up on it, then all of a sudden things got rolling again. I guess that’s a lesson that people need to learn: Don’t give up. It was hot and cold, hot and cold, but in March last year I was in Costco’s office and they handed me the listing forms and said, ‘Yes, we’re going to do this.’” Even then, it took almost another year for that first sale. “Sometimes you just have to keep going,” he says. WHILE THE U.S. REMAINS Alberta’s largest trading partner by far — receiving 87 per cent of the province’s exports from 2011 to 2015 — and oil and gas remains the province’s primary export, other markets and economic sectors have strong potential for growth. China, in particular, is an intriguing possibility for many Albertan companies. It is expected to surpass the U.S. as the world’s largest economy any time now, if it hasn’t already, and its fast-growing middle class is demanding consumer goods, including safe, nutritious food. In light of President Donald Trump’s protectionist stance, China is also pitching itself as a defender of liberal trade regimes. The Trans-Pacific Partnership may be dead, but Chinese President Xi Jinping compared protectionism to “locking oneself in a dark room” to avoid danger. Canada, in contrast to the U.S., is a willing partner. Prime Minister Justin Trudeau has made deepening trade ­relations with China a key foreign policy objective and has dispatched veteran ­politician John McCallum to Beijing as ambassador to help smooth the process. At the same time, Ottawa is loosening restrictions on foreign investment, raising the threshold for automatic reviews of foreign takeovers to $1 billion. Windows of opportunity into China open and close, and there is one open now. Every five years, the Communist Party of China launches a series of social and economic initiatives designed to map strategies for economic development and set growth targets. The 13th five-year plan, launched last December, pays particular interest to supporting “strategic emerging industries,” which is code for “all the things China knows it needs to get good at that it isn’t really good at yet,” says Sarah Kutulakos, executive director of the Canada China Business Council. Those strategic industries include energy-saving and environmental protection, IT, biotech, high-end manufacturing, new energy and new materials. “Right now, in those strategic emerging industries, the window is wide open,” she says. “The government says it has money it wants to invest and that it wants foreign help.” In addition, over the last five years, China has made a concerted effort to change its economic structure so it doesn’t fall into the middle-income trap that has burdened many other Asian economies, whereby a country’s growth stalls after reaching middle income levels. Instead of pouring money into infrastructure and capital investments that support export-led growth, the Chinese government is supporting domestic consumption. “There’s no more growth left in export,” Kutulakos says. “The government said, ‘If we try to keep doing more of this, we’re going to stall, our people aren’t going to be happy, there will be too much unemployment, incomes won’t rise.’ It’s a recipe for disaster.” So Chinese consumers have more money in their hands and an increasingly strong social safety net that encourages them to spend on other things. They are spending on travel, food and beverage, and high quality imported consumer goods. “There is a sales opportunity on both the business-to-business side and the business-to-consumer side that didn’t exist a decade ago,” Kutulakos says. At the same time, China wants to move off the low-tech, cheap manufacturing that has supported economic growth and move up the technological curve. “If you want to make cheap toys in China now, they don’t want you,” Kutulakos says. “They’ll send you to Bangladesh or somewhere else.” If, on the other hand, you’re making high-tech equipment that China needs or you can help China’s native companies do that, then you’re much more welcome. This would apply to things like environmental technologies and automation. In addition to a growing domestic market, China – and Chinese businesses – are sitting on wads of cash. They’re buying foreign companies, snapping up technology, patents and expertise. Alberta has seen by far the most Chinese investment of any province, with 108 deals and $60 billion in investment since 2004. B.C. comes second, with $14.5 billion. Most of the investment in Alberta ($58.5 billion) has been in the energy sector, led by CNOOC’s acquisition of Nexen in 2013 for $15.1 billion. But other sectors have received money, including the agriculture and food sector which, including the Siwin deal, has seen $79 million invested. It’s worth noting that while 90 per cent of the investments in energy have been from Chinese state-owned entities, all the investment in agriculture and food has been private. “I always say, instead of buying that third house in Richmond, that $2 million can go a long way for a smallish Canadian business,” Kutulakos says. “It creates a circle of facilitating Canadian exports via inbound Chinese investment.” Which brings us back to Siwin Foods, a company that has seen the investment but is waiting to tap the Chinese market. The company is working with Agriculture and Agri-Food Canada’s Market Access Secretariat, which works to help Canadian exporters reach international markets. “They need to get the meat regulatory bodies in China together and create some agreements,” DeJong says, but he knows it will be slow going. “The way the Market Access Secretariat operates is they work on wherever they get the most inquiries for market access,” he says. “With what Justin Trudeau has been doing over the last couple of months I would think China would become more important, but I’m just not sure how they prioritize their workload.”

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JOHN YAO, TC SCIENTIFIC Photograph Ryan Girard

Even with the help of the secretariat, opening a market in China is no easy thing, and not just because of regulatory hurdles. Language and cultural barriers exist, and sweeping changes to Chinese policies can, as Kutulakos says, lead to the sudden closing of markets. But the effort can be well worth it. John Yao is a Mandarin-speaking, Chinese-trained chemist and the CEO of TC Scientific, an Edmonton-based company specializing in the design and synthesis of new chemicals, primarily for the pharmaceutical and oil and gas industries. Most of the company’s clients are in Canada with some in the U.S. and Europe, but so far none in Asia. Yao accompanied Alberta’s Minister of Economic Development and Trade, Deron Bilous, and 80 other business leaders on a trade mission to China last November. “We have an expertise that is wanted and needed in China,” Yao says. “Our chemists are world class and we can compete with any company in the world.” He says there have been no deals yet, but TC has signed two memorandums of understanding with Chinese companies, and he’s hopeful for more. He agrees that federal and provincial government involvement is crucial to opening Asian markets. “The approach that the government takes to their Chinese counterparts is very important,” he says. “The attitude is important, that they are seen to be supporting small and medium-sized exporters.” The election of Trump has changed the calculations in ways that are yet uncertain. On the one hand, if the North American Free Trade Agreement gets undone, Canada will lose the cachet of being a great launchpad into the U.S. At the same time, given the president’s insistence that factories be built in the U.S., Chinese investors are going to be motivated to build there and curry favour. On the other hand, given how unpredictable Trump is and how fraught government relations between the U.S. and China are at the best of times, having Canada as a strong partner will benefit the Chinese. Regardless, Kutulakos thinks the incentive is there for Albertan companies to persevere. “If you’re not doing business with the driver of 30 per cent of the world’s GDP growth every year, you’re going to suffer at some point,” she says. “Those Chinese companies that are mgrowing stronger and stronger are going to end up landing in the core markets of Canadian companies. When you start competing with them, wouldn’t you rather know them really well because you’ve collaborated with them in China? Because you’ve sold to them and know how to compete against them?”

Un-American Exports

Virtually all energy and fertilizer exports go to the U.S. Not so for other categories: Most agri-foods and almost half of advanced tech exports, for instance, go elsewhere. If Alberta wants to diversify its economy, these sectors might be the ticket.

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